(MONEY Magazine) – IF YOU'RE LIKE MOST SAVVY INVESTORS, the fact that dividend yields are at record lows while stock prices hover near record highs has given you pause. Could this classic danger signal for equities presage a market tumble? After all, the last time the yield on Standard & Poor's 500-stock index approached the current 2.5% was in high-flying 1987-two months before stocks crashed 33% in a week.

But the low yield may not be the harbinger of doom it's been in the past. Over the preceding 15 years, companies have failed to raise dividends at the same pace as their earnings growth. The percentage of income that companies pay as dividends today--called the payout ratio--is a meager 36%, compared with an average of 55% over the past half-century. "If you applied the historical payout ratio since World War II, the average yield today would be about 4%," says Brett Berry, a securities analyst at the San Mateo, Calif. investment advisory firm Bailard Biehl & Kaiser. "So today's low yield is not necessarily a reflection of overpriced stocks."

Even so, focusing on stocks that pay a fat dividend may be a very smart strategy. First, their payouts can offset at least the first 3% to 4% drop in share prices. Second, their plump yields may be a sign that their share prices have already been beaten down and are not likely to fall much more in a general market decline. If the company has got its business back on track, the stock could soon bounce back.

To find such high-yielding growth engines, we canvassed more than two dozen professional stock pickers looking for shares with a current yield of at least 4% and for companies that have put their problems behind them. The three issues here, all trading on the NYSE, meet those criteria. In addition, all raised their dividends in each of the past five years and all were strongly endorsed by at least two analysts. They are listed in order of their potential returns over the next 12 months, which range from 33% to 17%.

Philip Morris (mo; $74.50; 5.4%). Big Mo's famous 1993 strategy--cutting the price of its Marlboros to gain market share--ultimately worked, boosting the tobacco and food-products company's overall share of the U.S. cigarette market to 45.8% from 41.5%. Yet the stock still trades far below its 1992 high of $86 a share. Why? Many investors worry about the effects on $69 billion Philip Morris of smoking liability lawsuits. And analyst Edward A. Froelich of Pershing & Co. adds: "The Clinton anti-smoking push isn't helping, either."

But Wall Street analysts (see also Money Pro on page 173) think tobacco will ultimately light up the stock. Sanford C. Bernstein & Co. analyst Gary Black, for one, notes that international cigarette sales should be the company's largest profit center by 1996. "American cigarettes like Marlboro are perceived as less harsh and more prestigious than local brands in foreign countries," says Black. He thinks growing market share abroad as well as in the U.S. will ignite 15% annual increases in earnings over the next several years and push the shares up 28% to $95 within one year for a better than 33% total return.

Bristol-Myers Squibb (bmy; $68.75; 4.3%). One of the world's largest pharmaceutical and consumer-products makers, $13.7 billion Bristol-Myers Squibb boasts such well-known brands as Bufferin and Clairol. Its stock has yet to recover from the battering it took over health-care reform and, more recently, the company has been laboring to reach an agreement with plaintiffs in a large-scale silicone breast implant lawsuit. But an upturn is under way, says Cowen & Co. analyst Stephen M. Scala, thanks to a number of potentially lucrative new drugs. Among them: Taxol, a successful treatment for various cancers, and Pravachol, a cholesterol reducer.

Meanwhile, says Gruntal & Co. analyst David F. Saks, Bristol-Myers is also reaping the rewards of recent cost cutting that reduced employee ranks by roughly 10%. He believes that the combination of new products and cost cutting will raise profit margins even higher than the current 19.4% and lift Bristol-Myers' stock price 24% in a year to $85, for a total return of 28%.

Royal Dutch Petroleum (rd; $119.25; 4.5%). Oil prices have been in the tank, you should pardon the expression, trading around $17.50 a barrel. But rebounding economies in Western Europe and the former Soviet Union should help raise demand for crude and could boost oil prices as high as $19 a barrel next year, according to Larry Goldstein of the Petroleum Industry Research Foundation in New York City. If so, it would be welcome news for $105 billion Royal Dutch, the world's largest international oil and gas company.

More important, says Janney Montgomery Scott analyst James Van Alen, new oil finds have enabled Royal Dutch to increase its reserve life--a measure of oil still in the ground--to 11 years, vs. an average of 10 years for comparable big producers. Finally, Royal Dutch has trimmed $1 billion in operating costs over the past few years. Bailard Biehl & Kaiser's Berry figures these factors will elevate the stock price more than 17% to $140 by next fall, for a 22% total return. A word of warning: The company's dividend is subject to a 15% Dutch withholding tax, but you can apply that levy as a credit against the tax on your U.S. income.

--Gary Belsky